The oil outlook became slightly gloomier, Tuesday morning, as world markets traded crude below $43 per barrel, for the first time since August, 2016.
One Canadian economist said a sustained 10-month low would not help short term oil confidence in Alberta.
“Frankly, Canada is a bit of the story here,” BMO Chief Economist, Doug Porter told 660 NEWS. “There is an underlying strength in Canadian production and it looks to actually increase over the next couple of years.”
There were several factors at play: global oversupply, a June OPEC deal, and rebounding Canadian production. “I think there are some concerns that the OPEC deal might, or OPEC’s resolve could weaken as we continue to see relentless gains in U.S. production and at least a temporary bulge in inventories,” Porter qualified. “In the wake of the OPEC deal, which the market gave a bit of a thumbs down to,” Porter explained, “in the last week, we’ve see that weakness accelerate.”
“With oil prices retreating again, this could deliver a bit of a blow to Alberta, just as it looked like there was some light in the tunnel for the province,” he said, referencing the apparent rebound from 2016 woes.
And, while the Tuesday tumble was noticeable, it is not a complete dimming of the light at the end of that tunnel. Porter said time would provide the best perspective.
“If [oil] actually does break below $40 [per barrel] for more than, you know, a day or two, I think that’s going to ring some alarm bells,” he admitted, reminding market watchers, that hasn’t happened yet. “If it stays in the low $40s for, let’s say, a month, I think it does change the conversation, somewhat.”
Until now, the conversation had been quite positive. “The latest consensus I saw, among Wall Street forecasters, was for an average oil price in the mid to high $50s, for 2018,” the economist confirmed. Porter said sustained low trading would lend to maintaining low Bank of Canada interest rates, and has added to a decline in the Canadian dollar.
